When you spend 100 dollars or whatever your local currency is, you may think “hey 100 dollars for that product isn’t a bad deal!”. But I am going to tell you that a 100 dollar price-tag does not mean the product costs you 100 dollars.
Let me explain. To get 100 dollars in your pocket, you had to earn more than 100 dollars and then pay income tax on it. Lets say you have 33% total income tax, then you actually had to earn 150 dollars to get 100 dollars in your pocket. So when you merrily see something that costs 100 dollars and think “hey that’s a good deal!” then you should keep in mind that its actually 150 dollars.
Furthermore, people always quote the saying “time is money”, but I’d like to reverse that and say “Money is TIME”. Meaning, to make 150 dollars to end up with a net 100 dollars in your pocket, you had to work a certain amount of time. Lets say your income is 25 dollars an hour, then you had to work 6 hours to have the opportunity to earn 150 dollars to get 100 dollars in your pocket that you can spend on “that good deal”.
But that is not all. To have the opportunity to work for 6 hours, you had to have a roof over your head, food in your belly, heating, clothing, transportation, hygiene products, etc.
So lets say you work 7.5 hours a day (a Norwegian workday), 25 dollars an hour, 52 weeks a year (so paid holidays and such included, as Norwegians get). Then you earn 48 750 dollars, which for simplicity we can round to 50 000 because lets say you make a little bit extra on the side. Then you pay 33% taxes, and lets assume another 33% of your income is spent on housing, food, amenities, etc. This leaves you with about 17 000 dollars. Over twelve months that’s 1 416 dollars each month in pocket-money.
This means, when you buy a product that costs 100 dollars, what you’re actually saying is “I’m gonna trade over 2 days of my life, for this product”. Because each year you can buy about 170 items which each costs 100 dollars, so that’s one item about every two days.
Furthermore, if you buy something for 10 dollars, that’s about five hours of your life. What are the chances that what you’re buying will be five hours of enjoyment?
However, if we imagine that by some miracle you manage to save the entire 17 000 dollar sum of pocket-money and buy stocks for it, then you can expect between 4% and 8% return each year. which is 680 to 1 360 dollars, which is 2 to 4 weeks. If you then save the same amount of money for 10 years, with 6% average interest on interest, you end up with about 224 000 dollars saved up. Which is 13 years of pocket-money saved up in 10 years. If you keep going, you will end up with 1 000 000 dollars in 26 years, which is 58.8 years of pocket-money in 26 years.
So then you might think “hey with 17 000 spare cash each year, I can actually borrow quite a bit for a nice house!”. WRONG. You can borrow 270 000 dollars if you want to pay 17 000 a year for 26 years. Assuming 4% interest (that’s the US national average for 30 year fixed interest mortgages). So you can save 1 000 000 dollars in 26 years, or you can borrow 270 000 dollars in 26 years. Even if you are more pessimistic (or safer in investment risk) and assume 4% interest on savings as well as 4% on mortgage, then its still 750 000 dollars saved in 26 years, versus 270 000 dollars of debt paid down.
Even at only 4% interest on your savings, it would only take you 13 years to save up 270 000 and then buy the house in cash. HALF THE TIME compared to borrowing the money.
THIS is how the poor is kept poor. A culture that encourages debt. Credit cards, buy now pay later, three months free subscription, zero money down phones and cars, etc. Made doubly worse by planned obsolescence. Because you buy a new car every ten years (or even just a slightly newer used car), new phone every few years, new computer twice a decade, etc. And you often take on debt especially when you buy the car, and you might once in a while buy a phone on a subscription basis and a computer on a payment plan etc.
I believe the global economy is hurting from the amount of debt floating around. I could sell you a house in cash every 13 years, in this example, or I could let you borrow money to buy the house today and only sell you a house every 26 years. By culturally forcing debt on everyone, we are hurting our future prosperity. Because if I sell you something today chances are high you incur debt on that exchange, so it’ll be TWICE AS LONG until next time I can get your business.
We were originally in the mode of spending what we had in cash, most of the time. So you sold a 270 000 dollar house to someone (or its equivalent in other products) every 13 years. THEN some crafty pieces of shit decided to double dip in their generation, and offer to sell the same 270 000 worth of stuff TWICE in 13 years, with the second purchase being covered by credit. Then ever since we’ve been on the second type of operating mode, where we can only sell 270 000 worth of product to someone every 26 years in this example.
And because economists want endless growth they have therefore pushed for allowing people to incur more and more debt, because no generation of economists want to be the generation that takes the short-term hit of moving over to the cash mode from the debt mode.
Don’t encourage your kids to borrow money.